02/04/004/0005/001 Central Bank of Sri Lanka

Bank Supervision Department

To: All Licensed Commercial Banks and

Licensed Specialised Banks

GUIDELINES ON THE GRANT OF FACILITIES FOR THE ISSUE OF

COMMERCIAL PAPER AND OTHER FORMS OF PROMISSORY NOTES

All Licensed Commercial Banks (LCBs) and Licensed Specialised Banks (LSBs) are
hereby required to observe the following guidelines when they provide accommodation for
the issue of Commercial Paper and other forms of Promissory Notes (CP/PN) by their
corporate customers by accepting, endorsing, guaranteeing, underwriting or purchasing such
CP/PN, or where they support the issue of such instruments by acting as issuing/paying
agents, dealers, or by authenticating signatures of the issuers.

1. Form of Commercial Paper/Promissory Notes - CP/PN shall take the form of a

usance promissory note negotiable by delivery, or endorsement and delivery, in accordance
with the Bills of Exchange Ordinance.

2. Eligibility Criteria - The LCBs and LSBs shall observe the following criteria when
supporting the issue of CP/PN referred to above:

2.1 The issuing corporate customers should not be LCBs, LSBs or Finance Companies.

2.2 All existing credit facilities enjoyed by the issuing company with any LCB/LSB
should be “current” in terms of the Central Bank’s Directions on Non-Performing
Advances issued under Section 46A and Section 76J(1) of the Banking Act for LCBs
and LSBs, respectively.

2.3 In the case of providing accommodation, the issuing company should have an
approved stand-by credit line from the LCB/LSB supporting the issue, to the full
redemption value, which should be specifically reserved for the purposes of
redemption of such CP/PN. Such credit line should be for a period longer than the
maturity date of CP/PN.
OR

An ‘investment grade rating’ by a Rating Agency approved by the Central Bank of

Sri Lanka.

“full redemption value” refers to the amount of the principal, interest and any
other charges which is payable upon redemption of such CP/PN.
3. Procedures - A LCB’s/LSB’s support for the issue of CP/PN does not require the
prior approval of the Central Bank of Sri Lanka. However, in supporting the issue of these
instruments, LCBs/LSBs shall ensure that:

3.1 The company intending to issue such CP/PN submits to LCBs/LSBs -

(a) A written request indicating the nature of support applied for in respect of
each issue of CP/PN;
(b) Comprehensive financial information which would include company profiles
and financial data including a projected cash flow statement;
(c) The value of CP/PN already issued and outstanding;
(d) Board resolution for the issue of CP/PN concerned.

3.2 The LCBs/LSBs should also ensure that the company profiles and financial data are
made available to investors upon request.

3.3 An adequate appraisal of the financial condition of the issuer is carried out and due
caution is exercised before lending the support of the LCB/LSB. For this purpose, the
LCB/LSB should, among other things, obtain a report from the Credit Information
Bureau (CRIB).

3.4 The CP/PN are printed on good quality security paper incorporating adequate security
features, that necessary precautions have been taken to keep documents in safe
custody, preventing access by unauthorised persons.

3.5 The issue of CP/PN is completed within a period of 14 calendar days from the date of
issue. Thus, any unsold portion of the issue after the 14th day cannot be issued.

3.6 Each single issue of CP/PN should have the same maturity date.

3.7 The issuing company should discharge the obligations on the CP/PN on the date of
maturity. No grace period shall be given to the issuer in this regard.

3.8 The CP/PN shall contain the following minimum information/features:

(a) The description of debt instrument should be clearly printed on it;
(b) Name of the issuing company;
(c) Serial number;
(d) Place of payment (of interest and principal);
(e) Date of issue;
(f) Amount (in words and figures);
(g) Date of maturity;
(h) Names of the issuing and paying agents;
(i) If the repayment of principal and payment of interest are guaranteed, name of
the guarantor;
(j) Signatures of authorised signatories of the issuing company

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 (k) Where the LCB/LSB does not accept any obligation for the payment on the
CP/PN, as when it only authenticates the signature, such fact should be
conspicuously stated on the CP/PN;
(l) The counterfoil of CP/PN should also contain the information at (a) to (k). In
the case of (j), the signature/initials of the respective signatories.
(m) Adequate space should be provided for endorsements on the reverse of the
CP/PN.

3.9 (a) The LCB’s/LSB’s accounts in respect of CP/PN should be in conformity with
applicable/accepted accounting practices and non fund based support for
CP/PN should be recorded and reported as off-balance sheet items.
(b) The LCB’s/LSB’s obligations/commitments on CP/PN shall be reported in the
statutory returns submitted to the Central Bank of Sri Lanka.
(c) Details of the LCB/LSB support for the issue of CP/PN outstanding monthly,
shall be reported to the Director of Bank Supervision in a monthly statement
as in the annexed format. This statement shall be submitted by the 15th of the
following month, duly certifying that the obligations of the LCB/LSB under
the different categories of issue, as recorded in the General Ledger, are
correctly reflected in the statement. A ‘nil’ statement should be sent if there
are no outstanding balances.

3.10 The LCBs/LSBs supporting the issue of CP/PN should conform to all legal
requirements.

3.11 Roll-over of CP/PN should be considered as a new issue.

4. Prudential Requirements of the Central Bank

4.1 All credit facilities extended, and commitments made, by LCBs/LSBs relating to the
issue of CP/PN will be treated as accommodation granted to the issuing company and
shall be subject to directions issued from time to time under the Banking Act and to
all prudential guidelines issued by the Central Bank.

5. These Guidelines shall be effective from 05 January 2001.

6. Guidelines to Licensed Commercial Banks in Sri Lanka on the grant of facilities for
the issue of Commercial Paper dated 05.06.1995 are hereby rescinded.

7. Any clarifications/queries with regard to these Guidelines should be addressed to the

Director of Bank Supervision.

…………………………… Date 05/01/2001

P T Sirisena
Director of Bank Supervision

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 Monthly Statement of Commercial Paper/ Promissory Notes
As at ………………………..in terms of Guidelines dated 5 January 2001
(Amounts in Rupees Thousands)
Name of Issuing Company Legal Status of Type of Amount of the Issue (Face Amount Subscribed Date of Issue Date of Maturity Rate of Nature of
Issuing Promissory Notes Value) (YY/MM/DD) (YY/MM/DD) Interest (%) Support
Company Issued
(1) (2) (3) (4) (5) (6) (7) (8) (9)

Instructions :
* Column (2) * Column (9)
Please indicate using the following Codes: Please indicate using the following Codes:
Private Company - PR Nature of Support Code
Public Unquoted Company - PU Accepting AC
Public Quoted Company - PQ Endorsing EN
Peoples Company - PC Guaranteeing GT
Underwriting UN
Purchasing PR
* Column (3) : Please indicate whether Commercial Paper (CP), Promissory Notes Issuing Agent IA
(PN), or any other form (Please specify) Paying Agent PA
Dealer DE
Authenticating AU
* This statement should reach the Director, Bank Supervision Department on or before the 15th of the following month.

* A 'nil' statement should be submitted if there are no outstanding amounts.

We hereby certify that this statement reflects the value of support extended to the Bank's customers and that the statement figures tally with the General Ledger Balances as at the end of the month.

Date : Name of Bank : Authorised Officer:

DP/BS10/Excel/Disk24